An ETF To Protect Your Portfolio? Goldman Sachs Has a Product For You

Goldman Sachs Group Inc GS is launching a brand new fund aimed at investors looking to play defense in a volatile stock market.

What Happened: In a new prospectus filed with the SEC, the company outlined plans for its Goldman Sachs Defensive Equity ETF. According to the filing, the fund will be designed to achieve long-term capital growth while maintaining lower volatility than equity markets.

"The Fund will employ a 'Put Spread Collar' overlay strategy whereby the Fund simultaneously purchases a near-the-money put while selling (writing) an out-of-the-money call and put on the S&P 500® Index or other national or regional stock market indices (or related exchange-traded funds," Goldman said in the filing.

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In a nutshell, the goal of the new fund will be to provide similar returns to the SPDR S&P 500 ETF Trust SPY but with lower volatility and more downside protection.

Why It's Important: The S&P 500 is down 18.8% year-to-date, and investors are understandably looking for ways to defend their portfolios from additional volatility and downside. Inflation numbers remain at multi-decade highs, and rising interest rates are threatening U.S. corporate earnings.

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Goldman is likely creating this new fund due to requests from its clients for more defensive options. Ironically, the fact that investors are seeking this kind of defensive investment and a major Wall Street bank such as Goldman is selling it could be a contrarian indicator that the worst of the 2022 stock market sell-off is already in the rear-view mirror.

In the filing, Goldman didn't include the potential ticker of the new fund or a prospective launch date. Investors looking to take a more defensive approach to the stock market already have several options.

The iShares MSCI USA Min Vol Factor ETF USMV is a fund designed to mimic the MSCI USA Minimum Volatility Index, which includes large- and mid-cap stocks that have historically demonstrated low volatility. The utilities sector is also known for its relatively low volatility, so the Utilities Select Sector SPDR Fund XLU might be another good place to look for investors seeking to stay exposed to the stock market without the type of volatility they have experienced year-to-date.

Benzinga's Take: If the idea of Goldman's fund providing the same upside as the S&P 500 with less risk sounds too good to be true, it probably is. In the past three years, the SPY fund has generated a 35.8% total return compared to a 26.4% total return for the XLU fund and just an 18.4% total return for the USMV fund.

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